Dr. Sanjiv Agarwal
The aggregators who were till now not specifically covered under the Service Tax net on strict interpretation of law and could not catch the attention of revenue authorities came under the radar of one and all in Indian regulatory world once the app based cab services received the attention after Uber fiasco.
In case of aggregator model of services, it was a dispute as to who is the service provider and who is service receiver. The defence of the aggregator has been that they do not provide any service so as to be liable to Service Tax. While there was no specific definition of aggregator or tax liability (or exemption) for such services, Government has now specifically provided that such services shall be liable to Service Tax.
The services provided by the aggregator has now been brought under Service Tax net. By virtue of amendments in Service Tax Rules, 1994, in respect of any service provided under the aggregator model, the aggregator is being made liable to pay Service Tax if the service is provided using the brand name of aggregator in any manner.
Meaning of Aggregator
The word ‘aggregate’ literally means a whole formed by combining several elements; formed by the combination of many separate items or units. The aggregator is one, who therefore aggregates or causes aggregation of units, items, things or services.
Rule 2(aa) of Service Tax Rules as inserted by the Service Tax (Amendment) Rules, 2015 vide Notification No. 5/2015-ST dated 1.3.2015 defines ‘aggregator’ as under –
“(aa) ‘aggregator’ means a person, who owns and manages a web based software application, and by means of the application and a communication device, enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator”
For this definition, ‘brand name or trade name’ as defined in Rule 2(bca) of Service Tax Rules shall mean as under:
“(bca) ‘brand name or trade name’ means, a brand name or a trade name, whether registered or not, that is to say, a name or a mark, such as an invented word or writing, or a symbol, monogram, logo, label, signature, which is used for the purpose of indicating, or so as to indicate a connection, in the course of trade, between a service and some person using the name or mark with or without any indication of the identity of that person.”
For this definition of aggregator, following conditions are relevant –
(a) aggregator should be a person (as defined in section 65B (37) of Finance Act, 1994
(b) Aggregator should own and manage a web based software application
(c) It should enable a potential customer to connect with persons providing service of a particular kind (say, car rentals)
(d) Such connecting shall be by means of the web application and a communication device (say, mobile)
(e) Services should be provided under the brand name or trade name of the aggregator
Brand name or trade name (like ola, uber, taxi for sure and so on) can be a name or a mark such as –
(i) invented word or writing,.
(ii) a symbol,
(v) label or
which is –
(i) registered or otherwise
(ii) used for the purpose of indicating or indicate a connection
(iii) a connection between service and person using name or mark in course of trade
and such connection is with or without indication of identify of that person.
With app-based companies gaining popularity, a new business model is bringing drivers, financiers and cab service providers to a common unified platform. Service providers (drivers) take loan to become business partner with app – based transport companies which also act as facilitators for loans. Radio Taxi model is different from aggregator model as in former case, fleets of cars or cabs is owned by service providers themselves i.e., car owner and provider of service is one only where as in case of aggregator, aggregator manages the app and cab is owned by service provider. The aggregator gets only commission for each drive.
In India, there are about 920 million mobile users and the market is growing fast. Mobile apps usage is the major revenue churner for aggregators. While in case of Meru, about 65 percent revenue comes from mobile apps, in case of Ola cabs, it is 85 percent. For Uber, it is 100 percent. It brings simplicity and efficiency for users as it is system based and date is recorded. Use of apps give customers the control. A cab can be booked by a simple touch. Time taken to reach customer, payment by card or mobile wallet, exact location of driver etc. all is possible.
Examples of the aggregators include Uber, Ola cabs, Flipkart, Snapdeal, Amazon, Airbnb, Expedia, Groupon, Blabla car, Tripda etc. The aggregators would include online service providers that own and manage a web based software application.
In respect of any service provided under aggregator model, the aggregator, or any of his representative office located in India, is being made liable to pay Service Tax if the service is so provided using the brand name of the aggregator in any manner. If an aggregator does not have any presence, including that by way of a representative, in such a case any agent appointed by the aggregator shall pay the tax on behalf of the aggregator.
In this regard appropriate amendments have been made in rule 2 of the Service Tax Rules, 1994 and Notification No. 30/2012-ST dated 20.6.2012
Who is person liable
According to Service Tax (Amendment) Rules, 2015 vide Notification No. 5/2015-ST dated 01.03.2015, aggregator shall be the person liable to pay Service Tax in relation to services involving an aggregator.
The definition of aggregator has been brought under Service Tax Rules, 1994 and such aggregators have been made person liable to pay Service Tax.
Rule 2(1) (d)(i) (AAA) reads as under –
“(AAA) in relation to service provided or agreed to be provided by a person involving an aggregator in any manner, the aggregator of the service:
Provided that if the aggregator does not have a physical presence in the taxable territory, any person representing the aggregator for any purpose in the taxable territory shall be liable for paying service tax;
Provided further that if the aggregator does not have a physical presence or does not have a representative for any purpose in the taxable territory, the aggregator shall appoint a person in the taxable territory for the purpose of paying service tax and such person shall be liable for paying service tax.”
Thus, in any of the following situations, aggregator shall be the person liable to pay tax –
(a) aggregator, in normal course of trade or business where he is present in taxable territory
(b) where aggregator is not physically present in taxable territory – his representative in taxable territory for any purpose
(c) where aggregator does not have physical presence in taxable territory, by himself or through authorized representative, he will have to appoint a person in taxable territory for the purpose of paying Service Tax and such person will be liable to pay Service Tax on behalf of aggregator.
The person liable shall thus be,
(a) aggregator himself
(b) his authorized representative in taxable territory,
(c) person appointed by aggregator for purpose of Service Tax
The aforesaid shall be deemed to be persons liable in that order of preference. For example, if aggregator is in taxable territory, his representative cannot be made person liable. Where the aggregator does not have any presence in India, including that by way of a representative, in such cases any agent appointed by aggregator shall have to pay Service Tax on behalf of the aggregator. Even if such aggregator appoints a liaison officer or country representative or head, such officials shall be required to pay Service Tax and file Service Tax returns on behalf of such aggregator.
Tax under reverse charge
Under Notification No. 30/2012-ST as amended by Notification 7/2015-ST dated 1.3.2015, Service Tax for services provided or agreed to be provided by a person involving an aggregator in any manner shall be payable under reverse charge mechanism. 100 percent of Service Tax shall be payable by the aggregator.
The effective date for levy of Service Tax on services involving aggregator shall be 1st March 2015. The amendments in Service Tax Rules 1994 and Notification No. 30/2012-ST have been made effective from March 1, 2015 itself, i.e. date of notifications.